US SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
(X) Annual report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal period ended December 31, 2003.
( ) Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from
to .
Commission File Number 0-24185
CENTRAL AMERICAN EQUITIES CORP.
Florida 65-0636168
(State of incorporation) (IRS Employer ID Number)
Hotel Alta, Santa Ana, Costa Rica
(Mailing: Hotel Alta, Interlink 964 POB 02-5635 Miami, FL 33102)
(Address of Principal Executive Offices)
+011 (506) 282-4160
(Registrant's telephone number)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 Par Value
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the preceding
twelve (12) months (or for such shorter period that registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past ninety (90) days.
YES ( ) NO ( X ).
THE COMPANY HAS NOT YET FILED 10-Q REPORTS REQUIRED IN 2004.
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and if no disclosure will be contained, to the best
of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
10KSB or any amendment to this Form 10-KSB. [ ]
$1,037,709
(Issuer's revenues for its most recent fiscal year).
(Aggregate market value of the voting stock held by
non-affiliates of Registrant)
19,739,268 Shares Class A Common Stock, $.001 par value
(Number of shares outstanding of each of the Registrant's classes of
common stock, as of December 31, 2003)
Note that the number of shares outstanding as of
October 12, 2004 is as follows:
19,789,268 shares of Class A Common Stock, $001 par value
Transitional Small Business disclosure format (check one)
YES [ X ] NO [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report on Form 10K of Registrant for the year ended December 31, 2000
Annual Report on Form 10K of Registrant for the year ended December 31, 2001
Annual Report on Form 10K of Registrant for the year ended December 31, 2002
Report on Form 8K of July 2004
INFORMATION REQUIRED IN REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF THE BUSINESS 4
Formation of the Company 4
ITEM 2. DESCRIPTION OF THE PROPERTIES 4
Hotel Alta 4
Sunset Reef Marine Hotel 5
Tropicana Restaurant at Playa Carmen 5
ITEM 3. LEGAL PROCEEDINGS 5
Potential Legal Proceeding and Liability Post December 31, 2003 5
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 6
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 6
Description of Securities 6
Sales of Unregistered Securities During 2003 7
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS 8
Overview 8
Results of Operations --- Years Ending December 31, 2003 and 2002 9
Liquidity and Capital Resources 10
Currency Devaluation 10
ITEM 7. FINANCIAL STATEMENTS 10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS 24
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS 24
Identification of Directors and Executive Officers 24
Business Experience 25
Family Relationships 26
Involvement in Certain Legal Proceedings 26
ITEM 10. EXECUTIVE COMPENSATION 27
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT & CERTAIN BENEFICIAL
OWNERS 29
Security Ownership of Certain Beneficial Owners 29
Security Ownership of Management 30
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 30
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K 31
VERIFICATION SIGNATURES 32
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS 33
SARBANES-OXLEY ACT SECTION 906 CERTIFICATIONS 34
ITEM 1. DESCRIPTION OF THE BUSINESS
Central American Equities Corp. (the "Company" or "CAE")
is a US hospitality company, based in Santa Ana, Costa Rica
and incorporated in the State of Florida on January 23, 1996.
The Company specializes in providing high-quality food and
lodging in Costa Rica. The Company is in the business of
owning and operating hotels and restaurants and real property in Costa Rica.
As of December 31, 2003, CAE owned Hotel Alta in Santa Ana
(a suburb of the capital city of San Jose) and Sunset Reef
Marine Hotel (on the Pacific Ocean in Mal Pais adjacent to
the protected Cabo Blanco Reserve). CAE also owns and
operates La Luz Restaurant (located in Hotel Alta),
Restaurant Tropicana (on the beach at Playa Carmen near
Sunset Reef), and Alta Travel Planners (a full-service
reservation, travel planning and in-bound tour operation
based in Costa Rica). (Note that the Company sold Tropicana in June 2004.)
The first year of full operation of the Company's hotels was 1998.
All Company owned facilities, except for Restaurant Tropicana,
were open and operating by the beginning of 1998. By late 2001
Tropicana Restaurant was operated by the Company (in past years
it had been rented on a monthly basis). On December 31, 2003,
the Company had approximately 65 full-time, part-time and
contract employees.
Formation of the Company
Central American Equities was formed by the acquisition
of several California limited partnerships. In December
1996, CAE combined the assets of four limited partnerships
(Cal Tico, L.P. ("Cal Tico"), Ecolodge Partners L.P. ("Ecolodge"),
MarineLodge Partners, L.P. ("MarineLodge") and, L.A. Cal L.P.)
in a form of entity restructuring referred to as a "roll up."
Under the terms of the roll-up, each partners' capital account
was exchanged for common stock in Central American Equities
(a Florida corporation incorporated on January 23, 1996);
one share of common stock for each dollar of capital.
In exchange for the ownership of the four partnerships,
CAE issued 10,881,277 shares of common stock on December 10, 1996.
At this point the partnerships dissolved. (For a complete
discussion of the creation of CAE and the original limited
partnerships, please refer to the 1998 and 1999 10KSBs).
ITEM 2. DESCRIPTION OF THE PROPERTIES
As of December 31, 2003, CAE consisted of three properties in
Costa Rica: Hotel Alta (including Restaurante La Luz), Sunset
Reef Marine Hotel, and Tropicana Restaurant at Playa Carmen.
Hotel Alta's land and buildings are owned by Hotelera Cal
Tico, S.A., a Costa Rican corporation. Sunset Reef's land
and buildings are owned by Sociedad Protectora de la Fauna y Flora
de Mal Pais, S.A. a Costa Rican company. Corporacion Muxia, S.A.
a Costa Rican Corporation, owns the land at Playa Carmen and restaurant
Tropicana. As of December 31, 2003, CAE owned 100% of the stock of the
following Costa Rican Corporations: Hotelera Caltico, S.A. and Sociedad
Protectora de la Fauna y Flora de Mal Pais, S.A. (which owns 100% of
Corporacion Muxia, S.A.). (See text and Notes to the Financial Statements
for a discussion of changes in ownership of property that has occurred
after the period covered by this filing.)
Hotel Alta
Hotel Alta is a 23-unit, luxury hotel located on approximately one acre of
land in Alto de las Palomas, Santa Ana, 8 miles from downtown San Jose.
Nearby Santa Ana and Escazu are considered among the most affluent districts
of Costa Rica and are currently experiencing a significant real estate
boom. Nearby facilities include golf courses, tennis courts, and an
equestrian center. La Luz, a 60-seat fine dining restaurant located
within the hotel is owned and operated by CAE. The restaurant receives
guests from nearby hotels and upscale locals who seek gourmet meals.
Additional facilities are provided for banquets and corporate events for
up to 120 guests.
Sunset Reef Marine Hotel
Sunset Reef Marine Hotel is located in the small Pacific beachfront town of
Mal Pais on the southern tip of the Nicoya Peninsula. Mal Pais lies near the
northern border of the renowned Absolute Natural Reserve of Sunset
Reef --- described by one guidebook as the "jewel of nature at the very tip
of the Nicoya Peninsula."
Sunset Reef contains about 3 acres of beachfront land with 1500 feet
of ocean frontage. The hotel is surrounded by miles of unspoiled shoreline,
spectacular beaches, and lush tropical forests. Currently on site there
is a fully operating 14-room hotel complete with pool, restaurant, and
bar.
Tropicana Restaurant at Playa Carmen
Tropicana, a 100-seat restaurant with bar is located approximately three
miles away from Sunset Reef Marine Hotel on the broad, white, sandy beach
at Playa Carmen, known as one of the best surfing beaches in Costa Rica.
The rectangular parcel has 168 feet of beach frontage and an area of 3.2
acres. In November 2001, CAE began to operate the restaurant. In late
2002, CAE began the process of selling the land. In 2003 it explored
using the property as collateral to help finance debt and also proposed
that part of the land be used in exchange for past debt owed to Costa
Rica tax authorities. (In June 2004, the Company sold Tropicana
Restaurant to help pay for the debt owed to Costa Rica tax authorities.)
ITEM 3. LEGAL PROCEEDINGS
During 2003 there were actions against Central American Equities in the
Costa Rican Labor Court that had been brought by former employees who
had been dismissed by the Company due to poor performance or
insubordination. These employees dispute the reason for their
dismissal and, as such, claim they are entitled to additional monetary
compensation. The Company considers these actions to be routine
litigation that is incidental to the business (as defined under
Reg. 228.103). It is anticipated that any contingent liability stemming
from these claims would be immaterial to the Company.
Potential Legal Proceeding and Liability Post December 31, 2003
On November 2002, Hotel Alta owed Tributacion (the Costa Rican taxing
authority) approximately $240,000 in unpaid sales taxes. These taxes
have been listed on past balance sheets as an accrued expense. The
Costa Rica government offered to all companies in Costa Rica amnesty
from interest and penalties for back taxes paid by April 30, 2003.
Prior to April 30, 2003, CAE, unable to pay these taxes in cash,
proposed that the debt be resolved with the exchange of property
worth an equivalent value (part of the parcel in Playa Carmen where
Restaurante Tropicana is located). It is the Company's contention
that Tributacion accepted this offer on April 30, 2003 and began a
process of appraising the property to determine how much of the tax
liability was to be cancelled.
In August 2003, Tributacion notified the Company that it would not accept
the property in lieu of payment (in whole or in part) and demanded that
the Company pay the past due taxes with interest and penalties.
Between August 2003 and August 2004 the Company attempted to negotiate
with Tributacion concerning the amount of taxes owed and the applicability
and legality of interest and penalties related to those taxes. These
negotiations were unsuccessful. As such, on September 13, 2004 the Company
brought suit against Tributacion in the Costa Rican constitutional court
for not accepting this offer of property in exchange for an outstanding tax
liability. The refusal of the offer denied the opportunity for the Company
to successfully meet the tax amnesty deadline. Believing it has been denied
due process and equal treatment under Costa Rican law, management plans to
pursue the case vigorously. It is difficult to evaluate the likelihood of an
unfavorable outcome in this case but we estimate it to be at or below 50%.
If an unfavorable outcome results, the Company may be liable for interest
and penalties of approximately $175,000. The principal tax liability
for past payments due as of December 31, 2003 was approximately
$170,000 (not including potential interest and penalties) and has
been accounted for in the financial statements of this filing.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company submitted no matter to a vote of its security holders
during its fiscal year ended December 31, 2003.
On May 15, 2004 the Company held its annual meeting at Hotel Alta
in Santa Ana, Costa Rica. At the meeting a quorum was certified
with 14,751,171 shares present or 74.5% of the 19,789,268 shares
outstanding. During the meeting:
1. Richard Wm. Talley, Michael Caggiano, and Jim Voloshin were
elected to the board of directors with a 96% approval of those
shareholders voting.
2. Clyde Bailey was approved as the auditor for the Corporation
with a 99% approval of those shareholders voting.
3. The amount of Class A Common Stock outstanding was increased
from 20,000,000 shares to 25,000,000 shares with a 93% approval
of those shareholders voting.
4. The outstanding board director loans were assigned a 5%
interest rate with a 93% approval of those shareholders voting.
5. The board directors were each granted 25,000 shares of common
stock as compensation with a 93% approval of those shareholders
voting (prior to this vote, board members did not receive
compensation for board services accept reimbursement for expenses).
The Company submitted no other matters to a vote of its security
holders during the nine-month period ended September 30, 2004.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Description of Securities
As of December 31, 2003, the Company's authorized capital stock
consisted of 20,000,000 shares of common stock (increased to 25,000,000
in May 2004), par value $.001 per share, and 1,000,000 shares of preferred
stock, par value $.001 per share. As of December 31, 2003, 19,739,268 shares
of common stock were issued and outstanding (increased to 19,789,268 during
the first quarter of 2004); 1,000,000 shares of preferred stock were issued
and outstanding.
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the stockholders. The common stock does not have
cumulative voting rights, which means that the holders of a majority of
the outstanding shares of common stock voting for the election of
directors can elect all members of the board of directors. A
majority vote is also sufficient for other actions that require the
vote or concurrence of the stockholders (except in cases in which
more than a simple majority is required by law). Holders of common
stock are entitled to receive dividends, when, as, and if declared
by the board of directors, in its discretion, from funds legally
available therefore. Subject to the dividend rights of the holders
of preferred stock, dividends for holders of shares of common stock
are declared by the board of directors out of funds legally available
therefore. Upon liquidation, dissolution or winding up of the
Company, after payment to creditors, the holders of common stock are
entitled to share ratably in the assets of the Company, if any.
The Bylaws of the Company require that only a majority of the issued
and outstanding shares of common stock of the Company need be
represented to constitute a quorum and to transact business at a
stockholders' meeting. The common stock has no preemptive rights
or subscription, redemption or conversion privileges. All of the
outstanding shares of common stock are fully paid and non-assessable.
In mid-August 2000, Central American Equities qualified under the new
rules of the National Association of Securities Dealers (NASD) and
listed its stock on the Over the Counter Bulletin Board ("OTCBB")
under the symbol "CENE". Currently the stock is listed on the
Electronic Pink Sheets. Between January 2003 and December 2003
the stock had a range of approximately $0.02 to $0.7 per share.
These quotations may reflect inter-dealer prices, without retail
mark-up, markdown or commission and may not represent actual transactions.
The number of shareholders of record of the Company's common stock
is approximately 226 with approximately 418 stock certificates
outstanding. The Company has not paid nor declared any dividends
upon its shares of common stock since its inception and, does not
contemplate or anticipate paying any dividends upon its shares of
common stock in the near future. The transfer agent for the Companys
common stock is Olde Monmouth Stock Transfer Company, 200 Memorial
Parkway, Atlantic Highlands, NJ 07716.
The Company's board of directors has total discretion as to the
issuance and the determination of the rights and privileges of any
shares of preferred stock issued by the Company. Such rights and
privileges may be detrimental to the rights and privileges of the
holders of common stock.
The Company currently has 1 million shares of Class "A" convertible
preferred stock issued and outstanding. The Class "A" convertible
preferred stock has the following provisions: a) the option to transfer
the shares into common stock on a one-for-one basis, b) the same voting
rights as common stock, and c) the same liquidation preferences as
common stock.
Sales of Unregistered Securities During 2003
During the third and fourth quarter of 2003, the Company raised cash
by selling securities that were not registered under the Securities
Act of 1933, as amended (the "Securities Act"), or any state
securities laws. The sale of the securities was intended to be
exempt from registration under the Securities Act, by virtue of
Section 4(2) of Regulation D.
The Company successfully sold 3,360,000 shares of Common Stock
and 1 million shares of Class "A" convertible preferred stock.
In total, the Company raised $178,200 net of costs from the
sale of stock. The average price per share was $0.05. The shares
were sold entirely to current Company stockholders.
The proceeds of these sales, less any deductions for transactional
fees including, but not limited to, commissions, accounting fees,
legal fees, and printing costs was used for debt reduction (including
reduction of a tax liability) and working capital. The Company paid a
director of the Company (Richard Wm. Talley) $19,800 (10% of gross
proceeds) in commission on the sale of the stock.
The Class "A" convertible preferred stock has the following
provisions: a) the option to transfer the shares into common
stock on a one-for-one basis, b) the same voting rights as
common stock, and c) the same liquidation preferences as common stock.
During December 2003, the Company also exchanged 240,000 shares
of Common Stock for $12,000 debt owed to a director (Rosenmiller).
The debt was exchanged for shares at a price of $0.05 per share.
Rosenmiller had originally loaned the Company $40,000 in September 2003.
In the fourth quarter of 2003 the Company issued an additional 700,000
shares of Common Stock to Michael Caggiano, the Company President and
CEO. Recognizing that significant past salary was due and payable, the
board collateralized full compensation due with a company asset: the
Playa Carmen (Tropicana) property in Mal Pais. In the first quarter
of 2004 the Company granted 50,000 shares of Common Stock to an
employee of the Company.
As of September 30, 2004 the Company had 19,789,268 shares of Common
Stock issued and outstanding and one million shares of Preferred Stock
issued and outstanding.
ITEM 6. MANAGEMENT DISCUSSION AND ANALYSIS
The following is management's discussion and analysis of significant
factors that have affected the Company's financial position and operations
during the fiscal year ended December 31, 2003.
Overview
The year 2003 began as a time of continuing difficulty for the Company.
A slowing of the American economy and a decline in travel related to the
terrorist events of September 2001 helped to reduce the number of tourists
traveling to Costa Rica. The number of tourists traveling to Costa Rica
for each of the past three years respectively has been lower than 2000
(2001 was 11% lower than 2000; 2002 was 13% lower than 2000; and 2003
was 5% lower than 2000).
However, after several years of difficulty, the Company began to show
the first signs of post 9-11 improvement in the last quarter of 2003.
For Hotel Alta, occupancy for both October and November 2003, registered
the best ever for these months. Overall, annual occupancy for 2003 at
Hotel Alta increase by 5.4% from about 41% in 2002 to 43.5% in 2003.
Reflecting increased marketing and the upturn in visitors to Costa Rica,
Sunset Reef recorded its best December ever in 2003. Annual occupancy,
however, at Sunset Reef was flat at about 22%
Management continued to reduce expenditures even though occupancy
increased. In 2003, Hotel Alta's redesigned webpage (www.thealtahotel.com)
and web-marketing campaigns (including search-engine positioning and
strategic placement of click-through advertisements and the use of
Hotels.com)
began to show results with increased on-line reservations. The
decision to increase the Hotel Alta's attractiveness to the
business traveler (with the installation of high-speed internet
access in the hotel rooms and the hotel's business center)
increased business reservations in the last half of 2003 (the "low season").
During its annual meeting held on May 15, 2004 management discussed the
advantages and disadvantages of continuing to operate
its current business while
remaining a publicly traded company. Foremost was the cost to the Company
of remaining a publicly trading company, as it is expensive and time
consuming. For this reason, the board has questioned the value of remaining
a publicly trading Company and has decided it is not in the best interests
of the shareholders to operate the hotels as a public entity. As such, we
intend to explore the idea of selling the hotels and seeking out business
opportunity candidates to merge into the Company. There is no assurance,
however, that management will do this.
Results of Operations --- Years Ending December 31, 2003 and 2002
The following is management's discussion and analysis of significant
differences in the Company's financial position and operations between
the fiscal year ended December 31, 2003 and the fiscal year
ended December 31, 2002.
Balance Sheet
Between December 31, 2002 and December 31, 2003 total assets had a net
decrease from $6,576,935 to 6,477,935 primarily as a result of
depreciation of approximately $183,000 and an increase of cash
and accounts receivable of more than $73,000.
Between Fiscal Year Ended (FYE) 2002 and FYE 2003, total liabilities
decreased from $1,163,962 to 1,130,276. Long-term debt declined as
the Company reduced the principal on its loan from BCT bank by about
$68,500 (note that part of the BCT debt is now classified as short-term
debt). An officer of the Company made an additional loan in September
2003 of about $28,000. This loan was made to help pay Tributacion (the
Costa Rican taxing authority) for taxes due. Note that the balance sheet
shows an increase in long-term debt because in September 2003 a debt due
to the CEO of the Company ($215,298 related to past salary) was shifted
from Accounts Payable to Debt Due to Officers.
Statement of Operations
Revenues at the two hotels are primarily dependent upon the occupancy rates
and per room charges (although other services are sold). During 2003, due
to the previously mentioned up tick in occupancy at the end of the year,
occupancy at Hotel Alta increased by about 5.4%. Occupancy at Sunset Reef
in 2003 remained approximately the same as 2002.
Between December 31, 2002 and December 31, 2003 total sales revenue
increased from $1,000,967 to $1,037,709 (about 3.7%). Total operational
expenses (cost of services and general and administrative costs) were
$1,052,689. This is a decline of about 11.2% (about $141,000) from
$1,194,148 in 2002.
The Company had a loss of about $15,000 before interest expenses and
depreciation. During FYE 2003, depreciation was approximately $183,000.
Of the $80,000 in interest expense during the period, the majority was
interest and fees related to the $500,000 loan with Banco BCT.
Net losses (including interest expenses and depreciation) have declined.
Net loss for FYE 2003 was $278,334. This is approximately 114,000 less
then the net loss for FYE 2002. Loss per share is less than $0.02.
Between December 31, 2002 and December 31, 2003 cumulative losses
(retained deficit) grew from about $4.8 million to about $5.1 million.
Liquidity and Capital Resources
To date, Company operations have resulted in losses, albeit declining.
During 2003 capitalization was not sufficient to fund necessary expenses.
The Company has limited, albeit improving, cash liquidity and capital
resources. The Company plans to hold sufficient cash from the sale of
assets in reserve to protect against liquidity needs during 2004.
Currency Devaluation
Historically, changes in the rate of exchange between dollars and
colones (the Costa Rican currency) have had an insignificant effect
on liquidity because the rate of exchange is relatively predictable.
The Central Bank eases devaluation pressure on the colon through a
system called "mini-devaluation" whereby it decreases the colon's
value daily by centimos, establishing a rate that is generally
followed by most banks and exchange houses in the country. Over
the past few years the colon has devalued against the dollar between
10% and 15% annually.
Currency devaluations actually have a positive effect on the Company's
net operating revenues. Although the hotels are in Costa Rica, all hotel
rates are quoted in US dollars (the majority of hotel guests are from the
US and other parts of North America) and, as such, hotel revenues are
generally unaffected by devaluation of the colon relative to the US
dollar. The majority of hotel expenses in Costa Rica (including most
salaries) are in colones.
ITEM 7. FINANCIAL STATEMENTS
Audited financial statements for 2002 and 2003 follow. The Company's
financial statements were audited by Clyde Bailey, P.C. in 2002 and 2003.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Central American Equities Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheet of Central
American Equities Corp. and Subsidiaries as of December 31, 2003, and
the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the years ended December 31, 2003 and 2002.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States) Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Central American Equities Corp. and Subsidiaries at December 31, 2003
and the results of their operations, and their cash flows for the years
ended December 31, 2003 and 2002 in conformity with accounting principles
generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company's uncertainty as to
its sales growth and its ability to raise sufficient capital, raise
substantial doubt about the entity's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 3. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Clyde Bailey P.C.
September 6, 2004
San Antonio, Texas
Central American Equities Corp, and Subsidiaries
Consolidated Balance Sheets
As of December 31, 2003
ASSETS
Current Assets:
Cash and Cash Equivalent $ 85,955
Accounts Receivable 65,446
Inventory 31,379
Prepaid Expenses 3,550
Total Current Assets 186,330
Buildings and equipment, net of depreciation 6,291,605
Total Assets $6,477,935
LIABILITIES AND STOCKHOLDER EQUITY
Current Liabilities
Accounts Payable 69,618
Note Payable - Current Portion 36,000
Accrued Expenses 268,005
Total Current Liabilities 373,623
Long-Term Liabilities
Long-Term Deb 377,175
Notes Payable Related Parties 379,478
756,653
Total Liabilities 1,130,276
Stockholders' Equity
Preferred Stock, par value $.001 per share
authorized 1,000,000 shares, 1,000,000
shares outstanding 1,000
Common Stock, par value $.001 per share, 19,739
authorized 20,000,000 shares; 19,739,268
issued and outstanding
Additional Paid-In Capital 10,366,516
Accumulated other comprehensive income 81,186
Accumulated Deficit (5,120,782)
Total Stockholders' Equity 5,347,659
Total Liabilities and Stockholders' Equity $6,477,935
Central American Equities Corp. and Subsidiaries
Consolidated Statement of Operations
For the Years Ended December 31, 2002 and 2003
2002 2003
Revenues $1,000,967 $1,037,709
Cost of Services 309,478 325,224
Gross Profit 691,489 712,485
Operations:
General and Administrative 884,670 727,466
Depreciation 166,377 183,292
1,051,047 910,758
Operating Income (Loss) (359,558) (198,273)
Other Income (Expense):
Interest (expense) (82,099) (80,061)
Debt Forgiveness 49,660 -
Other Expenses - -
Other Income, net (32,439) (80,061)
Loss from Continuing Operations (391,997) (278,334)
Provision for Income Taxes - -
Net Income (Loss) $(391,997) $(278,334)
Net Income (Loss) per share $(0.03) $(0.02)
Weighted Average Shares
Outstanding 14,855,934 16,339,268
Central American Equities Corp and Subsidiaries
Consolidated Statement of Changes in Stockholder's Equity
.001 par value Accum.
Common Stock Pref. Stock Additional other Total
Shares Amount Shares Amount Paid-In Compre- Accum. Stockholder
$ $ Capital hensive Deficit Equity
Income
12-31-00
Balance
14,739,268 14,739 - - 10,149,816 41,066 (3,737,961) 6,467,660
Comprehensive
(Loss): 14,863 14,863
Net Loss
- - - - - (712,490) (712,490)
12-31-01
Balance
14,739,268 14,739 10,149,816 55,929 (4,450,451) 5,770,033
Stock Issued
for Services
700,000 700 - - 13,300 14,000
Comprehensive (Loss) 20,937 20,937
Net Loss (391,997) (391,997)
12-31-02
Balance
15,439,268 15,439 10,163,116 76,866 (4,842,448) 5,412,973
Stock Issued
for Services
700,000 700 16,800 28,000
Stock Issued
for Cash
3,600,000 3,360 1,000,000 1000 186,600 191,200
Comprehensive
(Loss) 4,320 4,320
Net Loss (278,334) (278,334)
12-31-03
Balance
19,739,268 19,499 1,000,000 1000 10,366,516 81,186 (5,120,782) 5,325,839
Central American Equities and Subsidiaries
Consolidated Statement of Cash Flows
For the Years Ended December 31, 2002 and 2003
2002 2003
Cash Flows from Operating Activities:
Net (Loss) $(391,997) $(278,334)
Adjustments to reconcile net loss to
net cash provided by
operating activities:
Depreciation expense 166,377 183,292
Debt Forgiveness 49,660 -
Stock Issued for Services 14,000 17,500
Unrealized Gain on Foreign Exchange 20,937 4,320
Loss on sale of facilities - -
Change in assets and liabilities:
Decrease (increase) in:
Accounts Receivable 41,148 (6,800)
Inventory (1,394) (11,064)
Prepaid Expense (3,269) 3,987
Increase (Decrease) in:
Accounts Payable (64,278) (174,787)
Accrued Expenses (21,100) 3,824
Net Cash Used in Operating Activities (189,916) (258,062)
Cash Flows from Investing Activities:
Capital Expenditures (310,655) (9,499)
Security Deposit - -
Payments received on notes collections 749,210 -
Payments received on sale of facilities 0 0
Net Cash Provided from Investing Activities 438,555 (9.499)
Cash Flows from Financing Activities:
Proceeds (Payments) from loans from officers (204,095) 218,778
Common Stock - 178,200
Payment of loans (47,998 (68,502)
Net Cash Used In Financing Activities (252,093 328,476
Net Increase (Decrease) in Cash (3,45 60,915
Cash Beginning of year 28,495 25,040
Cash End of year $25,040 $85,955
Central American Equities and Subsidiaries
Consolidated Statement of Cash Flows
For the Years Ended December 31, 2002 and 2003
2002 2003
Supplementary Disclosure:
Cash Paid for Interest $82,099 $80,062
Cash Paid for Taxes
Non-cash transactions:
Shares Issued for Services $14,000 $17,500
Shares Issued for Assets $ - $ -
CENTRAL AMERICAN EQUITIES CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 Summary of Accounting Policies
Nature of Business
Central American Equities Corp. and Subsidiaries (the "Company") was
incorporated under the laws of the State of Florida on January 23, 1996.
The Company provides an integrated eco-vacation experience in Costa Rica,
and is in the business of owning and operating hotels and real property in
Costa Rica.
In December of 1996, the Company entered into an agreement for the exchange
of common stock ("Exchange Agreement") with Cal Tico, L.P., Ecolodge
Partners, L.P. and Marine Lodge Partners, L.P. (Partnership). Pursuant
to the exchange agreement, the company issued 7,756,885 and 3,099,392
shares of common stock to limited partners and the general partners,
respectively, of the partnerships. In exchange for the shares, the
partnership transferred all of their interests (i.e. 100% of the
outstanding common stock) in the following Costa Rican corporations:
Hotelera Cal Tico, S.A.; Bandirma, S.A.; Sociedad Protectora De La
Fuana y Flora Marintima De Mal Pais, S.F.; Ecoprojecto San Luis, S.A.
and Confluencia, S.A.
Cal Tico, L.P. was a California limited partnership that was formed in
July 1992 to raise $2 million to purchase the land and construct Hotel
Alta. Cal Tico, L.P. owns 100% of the stock in Hoteleria Cal Tico, S.A.,
a Costa Rican corporation. Hoteleria Cal Tico, S.A, owns the land and
buildings at Hotel Alta.
Ecolodge Partners, L.P. was formed in July 1993 to raise a total of $1.3
million in a private placement offering to purchase the land and construct
the Ecolodge San Luis and Biological Station. Ecolodge Partners was a
California limited partnership that owned all of the stock in Ecoproyecto
San Luis, S.A. and Confluencia San Luis, S.A., the two Costa Rican
companies that own the Ecolodge land and buildings.
Marine Lodge Partners L.P. was formed in March 1995 to raise $1 million
for the purchase and renovation of the Sunset Reef. MarineLodge Partners
was a California limited partnership. Marine Lodge Partners owned 100%
of the stock in Bandirma, S.A. Bandirma owns: a) 90% of the Sociedad
Protectora De La Fauna y Flora Maritima de Mal Pais S.A., a Costa Rican
corporation which owns the land and buildings at Sunset Reef, and b)
100% of Muxia, S.A. which owns 100% of the land and buildings at Playa
Carmen.
Basis of Consolidation
The consolidated financial statements include the consolidated accounts of
Central American Equities Corp. and its subsidiaries. Hoteleria Cal Tico,
S.A., Bandirma, S.A., Sociedad Protectora De La Fuana y Flora Maritima De
Mal Pais, S.F., Ecoprojecto San Luis, S.A. and Confluencia, S.A. are held
100% by the Company. All inter-company transactions and accounts have been
eliminated in consolidation.
Cash and Cash Equivalents
For purposes of the statement of cash flows all certificates of deposits
with maturities of 90 days or less, were deemed to be cash equivalents.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed provided using the straight-line method over
the estimated useful lives of five for equipment, seven years for furniture
and fixtures and forty years for buildings and improvements.
Repairs and maintenance costs are expensed as incurred while
additions and betterments are capitalized. The cost and
related accumulated depreciation
of assets sold or retired are eliminated from the accounts and any gain or
losses are reflected in earnings.
Note 1 Summary of Accounting Policies (continued)
Estimates
Preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Adoption of Statement of Accounting Standard No. 123
In 1997, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123").
SFAS 123 encourages, but does not require companies to record at fair
value compensation cost for stock-based compensation plans. The Company
has chosen to account for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" and related
interpretations. Accordingly, compensation cost for stock
options is measured as the excess,
if any, of the quoted market price of the Company's stock at the date of the
grant over the amount an employee must pay to acquire the stock. The
difference between the fair value method of SFAS-123 and APB 25 is
immaterial.
Adoption of Statement of Accounting Standard No. 128
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" (SFAS 128). SFAS 128 changes the standards for computing and
presenting earnings per share (EPS) and supersedes Accounting Principles
Board Opinion No. 15, "Earnings per Share." SFAS 128 replaces the presentation
of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures and requires
a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation.
SFAS 128 is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. This Statement
requires restatement of all prior period EPS data presented.
As it relates to the Company, the principal differences between the
provisions of SFAS 128 and previous authoritative pronouncements are
the exclusion of common stock equivalents in the determination of Basic
Earnings Per Share and the market price at which common stock equivalents
are calculated in the determination of Diluted Earnings Per Share.
Basic earnings per common share is computed using the weighted average
number of shares of common stock outstanding for the period. Diluted earnings
per common share is computed using the weighted average number of shares of
common stock and dilutive common equivalent shares related to stock options
and warrants outstanding during the period.
The adoption of SFAS 128 had no effect on previously reported loss per
share amounts for the year ended December 31, 1997. For the years ended
December 31, 1999 and 1998, primary loss per share was the same as basic
loss per share and fully diluted loss per share was the same as diluted
loss per share. A net loss was reported in 1998 and 1997, and accordingly,
in those years the denominator was equal to the weighted average
outstanding shares with no consideration for outstanding options and
warrants to purchase shares of the Company's common stock, because to
do so would have been anti-dilutive. Stock options for the purchase of
357,500 shares at December 31, 1998 were not included in loss per
share calculations, because to do so would have been anti-dilutive.
Revenue Recognition
The Company records revenue at the point of service and maintains its
corporate records for both financial statement and tax return purposes
on the accrual method of accounting.
Foreign Exchange
Assets and liabilities of the Company,
which are denominated in foreign currencies, are translated
at exchange rates prevailing at the balance sheet
date. Non-monetary assets and liabilities are translated at historical rates.
Revenues and expenses are translated at average rates throughout the year.
The unrealized translation gains and loses are accumulated in a separate
component of stockholders' equity Translation exchange gains and losses
are reflected in net earnings.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which
principally include cash, note receivable, accounts payable and accrued
expenses, approximates fair value due to the relatively short maturity of
such instruments.
The fair value of the Company's debt instruments is based on the amount of
future cash flows associated with each instrument discounted using the
Company's borrowing rate. At December 31, 2002 and 2001, respectively,
the carrying value of all financial instruments was not materially different
from fair value.
Income Taxes
The Company has net operating loss carryovers of approximately $5.1 million
as of December 31, 2003, expiring in the years 2012 through 2023. However,
based upon present Internal Revenue regulations governing the utilization
of net operating loss carryovers where the corporation has issued
substantial additional stock, most of this loss carryover may not be
available to the Company.
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, Accounting for Income Taxes, effective July 1993. SFAS No.109
requires the establishment of a deferred tax asset for all deductible
temporary differences and operating loss carryforwards. Because of
the uncertainties discussed in Note 2, however, any deferred tax asset
established for utilization of the Company's tax loss carryforwards
would correspondingly require a valuation allowance of the same amount
pursuant to SFAS No. 109. Accordingly, no deferred tax asset is
reflected in these financial statements.
Recent Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, including Indirect
Guarantees of Indebtedness of Others" ("Interpretation No. 45").
Interpretation No. 45 elaborates on the existing disclosure requirements
for most guarantees, including loan guarantees such as standby letters of
credit. It also clarifies that at the time a company issues a guarantee,
the company must recognize an initial liability for the fair market value
of the obligations it assumes under that guarantee and must disclose
that information in its interim and annual financial statements. The
initial recognition and measurement provisions of Interpretation No. 45
apply on a prospective basis to guarantees issued or modified after
December 31, 2002. Interpretation No. 45 did not have an effect on the
financial statements.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("Interpretation No. 46"), that clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated
Financial Statements," to certain entities in which equity investors
do not have the characteristics of a controlling financial interest
or do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial support from
other parties. Interpretation No. 46 is applicable immediately for
variable interest entities created after January 31, 2003. For variable
interest entities created prior to January 31, 2003, the provisions
of Interpretation No. 46 are applicable no later than July 1, 2003.
Interpretation No. 46 did not have an effect on the financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for
Stock-Based Compensation -- Transition and Disclosure, an amendment
of FASB Statement No. 123" ("SFAS 148"). This Statement amends SFAS
123 to provide alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based
employee compensation. In addition, SFAS 148 amends the disclosure
requirements of SFAS 123 to require prominent disclosures in both
annual and interim financial statements. Certain of the disclosure
modifications are required for fiscal years ending after
December 15, 2002 and are included in the notes to these consolidated
financial statements.
Statement of Financial Accounting Standards SFAS No. 149, "Amendment
of Statement 133 on Derivative Instruments and Hedging Activities",
SFAS No. 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity", were recently issued.
SFAS No, 149, and 150 have no current applicability to the Company or
their effect on the financial statements would not have been significant.
Note 2 Federal Income Tax
At December 31, 2003 and 2002 deferred taxes consisted of the following:
2003 2002
Deferred tax assets,
Net operating loss carry-forward $ 1,865,000 $ 1,564,000
Less valuation allowance ( 1,865,000) ( 1,564,000)
-------- --------
Net deferred taxes $ -0- $ -0-
======== ========
The valuation allowance offsets the net deferred tax asset for which there
is no assurance of recovery. The change in the valuation allowance for the
years ended December 31, 2003 and 2002 totaled $306,300 and
$133,300, respectively. The net operating loss carry- forward
expires in year 2022. The valuation allowance will be evaluated at the
end of each year, considering positive and negative evidence about whether
the deferred tax asset will be realized.
At that time, the allowance will either be increased or reduced; reduction
could result in the complete elimination of the allowance if positive
evidence indicates that the value of the deferred tax assets is no longer
impaired and the allowance is no longer required.
Note 3 Going Concern
As shown in the accompanying financial statements, the Company incurred a
net loss of approximately $278,000 during the year ended December 31, 2003
that raise substantial doubt about the entity's ability to continue as a
going concern. .
The Company has received additional financing through the sale of a
non-performing asset, continues to control expenses, and evaluates the
ongoing performance of the Company's assets. The ability of the Company
to continue as a going concern is dependent on the success of application
and techniques. The financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going
concern.
Note 4 Property and Equipment
As of December 31, 2003 plant and equipment consisted of the following:
Land $840,075
Buildings 6,042,617
Machinery and equipment 125,535
Furniture and fixtures 286,635
Computer equipment 73,693
7,368,555
Less accumulated depreciation 1,076,950
$ 6,291,605
Depreciation expense in the amount of $183,292 and $166,377 has
been recorded for the years ended December 31, 2003 and 2002 respectively.
Note 5 Notes Payable
The Company has $364,875 outstanding against a $500,000 line of credit with
Banco BCT, which bears interest at the prime rate plus 3%. Principal
payments were to begin on January 10, 2000 in monthly installments of
$38,462; however, payments were renegotiated. During 2001 and 2002,
interest only was paid on the last day of each month. In February 2002,
the Company restructured the loan. The new terms include a loan term of
70 months; an annual interest rate of prime plus 3.75%, and monthly principal
payments that vary with the high and low occupancy periods of Hotel Alta.
Monthly principal payments in year one will vary from $3,000 to $9,000.
The funds advanced under this line of credit were utilized to supplement
cash flow for operating expenses and construction costs. The note
is collateralized by property of the Company.
Included in notes payable at December 31, 2001 is a note payable to
shareholder, dated July 21, 2000, of $48,300. The note payable bears
interest at 21% and was due July 22, 2002.
Note 6 Notes Payable Related Parties
Notes payable as of December 31, 2003 are as follows:
Note payable to shareholder dated November 30, 2000 with interest at
6% with no set terms for prepayment $130,200
Notes payable to principal officer for past salary 215,298
Note payable to shareholder dated July 15, 2000 with interest
at 6% with no set terms for prepayment 34,000
Total Due to Officers $379,498
Note 7 Commitments and Contingencies
The Company has a month-to-month lease for 1 acre of property. Minimum
rentals in the year ending December 31, 2003 are $18,000
Included as a liability on the balance sheet is an accrued expense in the
amount of $166,317 for non-payment of sales taxes for Hotel Alta. These
amounts have grown over several years. The amount listed in 2003 is an
accurate reflection on the amount past due at that time not including
penalties or interest.
Penalties and interest were not included as the government had an amnesty
program that forgave penalties and interest on all past taxes paid by
April 1, 2003. The Company planned to have the cash available to pay past
taxes by selling a beach property called Tropicana before April 1.
Instead, through negotiations with the government the Company offered part
of the property to the government in lieu of payment.
Before April 1 the government accepted the property and began
an appraisal to see how much of
the past taxes it would cover. In August 2003, the government reversed course
on the offer to accept the property. They demanded full payment of the back
taxes including penalties and interest. As of the report date, the Company
has paid down the tax liability by about $80,000, but is disputing the interest
and penalties.
Note 8 Sale of Ecolodge San Luis & Biological Station
In December 2001, the Company sold the Ecolodge San Luis property, all
related assets, structures, and the hotel business and its operating
licenses to Corporacion Negro y Rojo de San Luis S.A., a Costa Rica
corporation owned by the University of Georgia. Milton and Diana
Lieberman, former employees of Central American Equities, represented
the University of Georgia in this transaction.
Total consideration for the sale was $895,000 dollars including
previously received option payments. The loss on the sale of the
asset (net price less net book value) was approximately $265,000.
The price is based upon the value of assets and the ongoing business.
The Company initially financed the purchase of the asset under the
following terms: a) a 10% interest rate (13% if payments are delinquent),
b) a varying payment schedule to be completed within one year of sale, and
c) a $3,000 (increasing to $4,500) monthly rental fee for the Ecolodge San
Luis hotel business to be paid until payments for the business were
completed. Initial receipts from the purchase were used to pay all
Ecolodge San Luis liabilities including all severance-related payments
to employees. Following non-payment of principal in February 2002, in May
2002, the Company renegotiated the sale with officials of the University of
Georgia Real Estate Foundation. The Company forgave interest and rental
payments in exchange for immediate payment of all outstanding principal.
The details on the transaction are as follows:
Note receivable
Sale price $ 895,000
Liquidation & liabilities 30,000
865,000
Cash payments received 110,000
$ 755,000
Net sale price $ 865,000
Legal and transfer 20,000
$ 845,000
Net book value
Land $ 305,422
Structures & equipment 927,815
Accumulated depreciation (122,871)
Net book value $ 1,110,366
Net price
Gross price $ 895,000
Cost of sale 50,000
Net price 845,000
Net book value 1,110,366
Loss on sale of asset $ (265,366)
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Company's accountant is Clyde Bailey, P.C., C.P.A. Clyde Bailey was
named the Company CPA in August 28, 2003. At no time have there been
any disagreements with our accountants regarding any matter of
accounting principles or practices, financial statement disclosure,
or auditing scope or procedure. Both the 2002 and 2003 financial
statements in this filing are audited by Clyde Bailey, P.C., C.P.A.
The Company changed its accountant at a board of directors meeting held
on August 28, 2003. During this meeting, of which a quorum was present,
the Board of Directors of Central American Equities accepted the
resignation of Pinkham and Pinkham as its Certified Accountant for
the fiscal years ended December 31, 1999, December 31, 2000 and
December 31, 2001. During the three-year period from 1999-2001,
Pinkham and Pinkham was the principal accountant for Central American
Equities Corp. At no time did Pinkham and Pinkham's financial statements
contain an adverse opinion or disclaimer of opinion or was modified as
to uncertainty, audit scope, or accounting principles. Nor were there
any disagreements with Pinkham and Pinkham on any matter of accounting
principles or practices, financial statement disclosure, or auditing
scope or procedure. Also on August 28, 2003, Central American Equities
engaged Clyde Bailey, P.C. Certified Public Accountants as the
principal accountant for the Company. Central American Equities
authorized Pinkham and Pinkham to respond fully to the inquiries of
the successor accountant.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, AND CONTROL PERSONS
Identification of Directors and Executive Officers
The following table sets forth the names of all current directors and
executive officers of the Company. Mr. Talley, Mr. Rosenmiller, and Mr.
King were elected on 01/20/97. Talley and Rosenmiller will serve until the
next meeting of the stockholders or until their successors are elected
or appointed and qualified, or their prior resignation or termination.
At a board meeting in September 27, 2002, the board voted to "accept with
regret" Paul King's resignation from the board of directors. In
September 1998, Mr. Caggiano became the consulting CEO and President
of CAE and a board member of CAE.
In April 2004, the board voted to "accept with regret" Fred
Rosenmiller's resignation from the board of directors. At that
time, Dr. P. James Voloshin was elected to serve the remainder of
Mr. Rosenmiller's term. At a shareholder meeting of the Company
held on May 15, 2004, Mr. Talley, Mr. Caggiano, and Dr, Voloshin
were re-elected to the board of directors and will serve until the
next meeting of the shareholders.
Name Position Held Dates Age
Richard Wm. Talley Chairman/Director 1/1997 to current 61
Michael Caggiano President/CEO/Director 9/1998 to current 50
W.F.O. Rosenmiller Secretary/Director 1/1997 to current 71
Business Experience
RICHARD Wm. TALLEY, Chairman and Director of Central American Equities Corp
(age 61, time spent on company business: 10 percent). Mr. Talley was (with
Mr. King) a representative of Cal TKCo, S.A., the general partner in several
of the California Limited Partnerships that raised the seed money for the
Costa Rican corporations that built the hotels (see Item 1, Description
of Business). As of August 1999, Mr. Talley has been the CEO of Talley
and Co., an investment banking and general securities company located in
Irvine, California.
Mr. Talley began his finance career with Smith Barney in New York. He opened
and managed the Shearson office in Santa Barbara until its sale to American
Express in 1983, at which time he founded Talley, McNeil, and Tormey,
a regionally focused investment bank and brokerage firm. The firm was
merged into a larger Southern California investment banking and brokerage
firm in 1989. In 1993, Mr. Talley and Paul D. King founded Talley, King
and Co., Inc. ("Talley King") with offices in Irvine, California. Talley,
King & Co., Inc. was an investment bank which focused on private placement
financing.
Mr. Talley has been actively involved in Costa Rica for the last nine years.
Mr. Talley holds a bachelor of arts degree in European History from the
University of California, Santa Barbara and an MBA in Finance from
Cornell University, Ithaca, New York.
MICHAEL N. CAGGIANO, Ph.D. President, Chief Executive Officer, and Director
of Central American Equities (age: 50, time spent on company business:
ninety percent). Dr. Caggiano is also a officer and owner of Talley & Co.
During 2000, Dr. Caggiano was also a Director of Cafe Britt, a roaster and
distributor of premium Costa Rican coffee.
Prior to joining CAE, as a private consultant, Dr. Caggiano has specialized
in furnishing advice to management regarding economic performance,
corporate strategy, obtaining financing (business plans, prospectuses,
SEC and NASD filings), mergers and acquisitions, and organizational change.
His clients have included health care, real estate, hospitality,
international exporting, electronics, and manufacturing companies.
Dr. Caggiano has also provided public policy and litigation analysis
for local governments and private entities.
Prior to establishing his own company, Dr. Caggiano was Executive Vice
President in Charge of Consulting Operations at Robert Charles Lesser &
Co. (RCLCo) a 50-person, 5-office, national consulting firm based in Los
Angeles. While at RCLCo, he oversaw the management of more than 300
consulting engagements annually.
In 1990, Dr. Caggiano was elected to the first City Council of Malibu
and later served as its Mayor Pro Tem. Before serving as an elected official,
he was a Fellow and Policy Analyst with The RAND Corporation. While at RAND,
he specialized in solving state and local government financial and criminal
justice problems.
Dr. Caggiano holds a Ph.D. and an M.Ph. in Public Policy Analysis from the
RAND Graduate School of The RAND Corporation, an M.P.A. from the University
of Southern California, and a B.A. in Government from Pomona College.
W.F.O. ROSENMILLER, Secretary and Director of Central American Equities Corp
(age 71, time spent on Company business: one percent). During the past
five years, Mr. Rosenmiller has been self-employed as a real estate broker,
land developer, entrepreneurial investor and venture capitalist in the
United States. He has also been an individual and partnership investor
in Costa Rica. He is also a former board member of Centracan, Inc., a
US-based medical corporation that owns and operates medical diagnostic
and treatment facilities in Costa Rica.
Mr. Rosenmiller is a graduate of Penn State University (BS) and Drexel
University (MBA). Mr. Rosenmiller spent four years in the US Navy and
was honorably discharged as a full lieutenant with expertise in open
sea navigation as well as general nautical knowledge. Mr. Rosenmiller
brings to the Partnership a wealth of management and development experience.
As a director of the Snow Time Inc., a ski resort complex consisting of
facilities in New York State and York, Pennsylvania with revenues in excess
of $30 million, Mr. Rosenmiller has had over thirty years experience in the
hotel, restaurant, and bar business. He is a advisory board director of
First Union Bank and has had extensive experience on both the audit and
credit sides of partnership lending as well as project projections. Most
recently he has been involved in all aspects of a 200-acre subdivision of
high end condominium and single-family homes in York, PA. This project
has received national design awards.
Family Relationships
There are no family relationships between the directors or executive
officers of the Company, either by blood or by marriage.
Involvement in Certain Legal Proceedings
During the past five years, no present director, executive officer or
person nominated to become a director or an executive officer of the
Company was:
1. A general partner or executive officer of any business against which
any bankruptcy petition was filed, either at the time of the bankruptcy
or two years prior to that time;
2. Convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
3. Subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of
business, securities or banking activities; or
4. Found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity futures trading
Commission to have violated a commodities law, and the judgment has not
been reversed, suspended or vacated.
ITEM 10. EXECUTIVE COMPENSATION
The Company has no stock option or stock appreciation rights, long term or
other incentive compensation plans, deferred compensation plans, stock
bonus plans, pension plans, or any other type of compensation plan in
place for its executive officers, or directors except as noted in
Item 5 and listed below.
The following table sets forth the total compensation of current officers
and directors during the fiscal years ended December 31, 1997, 1998, 1999,
2000, 2001, 2002 and 2003. No officer or director of the Company earned
more than $100,000 from the Company during such fiscal years.
Name
Title Compensation
Richard Wm. Talley (1)
Director 1997 0
Director 1998 0
Director 1999 0
Director 2000 0
Director 2001 0
Director 2002 0
Director 2002 0
Director 2003 0
Paul King (1)
Director 1997 0
Director 1998 0
Director 1999 0
Director 2000 0
Director 2001 0
Director 2002 0
W.F.O. Rosenmiller
Secretary/Director 1997 0
Secretary/Director 1998 0
Secretary/Director 1999 0
Secretary/Director 2000 0
Secretary/Director 2001 0
Director 2002 0
Director 2002 0
Director 2003 0
Michael N. Caggiano (2)
1997 NA
CEO/President/Director 1998 $20,000
CEO/President/Director 1999 $45,000 (3)
CEO/President/Director 2000 $0 (4) (5)
CEO/President/Director 2001 $54,668 (6)
CEO/President/Director 2002 $75,000 (7) (8)
CEO/President/Director 2003 $75,000 (9)
(1) Does not include $100,100 in management fees received by Talley,
King & Company, Inc. in 1997. Messrs. Talley and King were owners of
Talley, King & Company, Inc.
(2) During the third quarter of 1998 the Company issued 19,200 shares
of its Class A Common Stock to Michael N. Caggiano, the Company's
Consultant CEO/President. The shares were issued in lieu of payment
for services rendered prior to him being appointed to his current position
as CEO and President.
(3) Mr. Caggiano's annual salary in 1999 was $65,000. As of
December 31, 1999, Mr. Caggiano was owed $22,500 in past
salary and $34,668 in compensation
due for services rendered prior to becoming the CEO. These amounts were
included in accounts payable.
(4) Mr. Caggiano's annual salary was increased to $75,000 in April 2000.
As of December 31, 2000, Mr. Caggiano was owed $89,400 in past salary and
34,668 in compensation due for services rendered prior to becoming the CEO.
These amounts are included in accounts payable.
(5) On April 12, 2000 the board additionally compensated Mr. Caggiano with
100,000 shares of CAE stock (one-third, or 33,333 shares, equally from
the holdings of directors Talley, King and Rosenmiller). Mr. Caggiano
was also granted options to buy CAE shares of Class A Common Stock as
follows: 100,000 shares @ $0.75; 100,000 shares @ $1.25; and 100,000
shares @ $1.75 (all to expire in 5 years).
(6) Mr. Caggiano's annual salary was $75,000 in 2001. The amount of
$54,668 is the value of past salary owed that was collateralized by Sunset
Reef (see Note 7 to Financial Statements). As of December 31, 2001, Mr.
Caggiano was owed $109,772 in past salary and $34,668 in compensation due
for services rendered prior to becoming the CEO. These amounts are included
in accounts payable.
(7) Mr. Caggiano's annual salary was $75,000 in 2002. However, as of
December 31, 2002, Mr. Caggiano was owed $162,464.72 in past salary.
This amount is included in accounts payable.
8) In the fourth quarter of 2002 the board additionally compensated
Mr. Caggiano with 700,000 shares of CAE stock and granted options to
Mr. Caggiano as follows: 100,000 shares @ $0.10; 100,000 shares @ $0.15;
and 100,000 shares @ $0.20 (all to expire in 5 years). In addition to
salary, the board compensates Mr. Caggiano with housing, motor vehicle,
and laundry and food in the hotels.
9) Mr. Caggiano's annual salary was $75,000 in 2003. However, as of
December 31, 2003, Mr. Caggiano was owed $215,298 in past salary. This
amount is included in loans from officers. In addition to salary, the
board compensates Mr. Caggiano with housing, motor vehicle, and laundry
and food in the hotels. In the fourth quarter of 2003 the board
additionally compensated Mr. Caggiano with 700,000 shares of CAE stock.
In the last quarter of 2003 the Company sold shares of common and
preferred stock. The Company approved and paid a director of the Company
(Richard Wm. Talley) $19,800 (10% of gross proceeds) in commission on the
sale of the stock.
At the shareholder meeting on May 15, 2004, the Company granted current
board directors (Talley, Voloshin, Caggiano) each 25,000 shares of common
stock as compensation for board services.
In August 2004, the board approved a $500 payment per board meeting for
non-employee board members.
ITEM 11. SECURITY OWNERSHIP OF MANAGEMENT & CERTAIN BENEFICIAL OWNERS
Security Ownership of Certain Beneficial Owners
The following table sets forth the shareholdings of those persons who own
more than five percent of the Company's total common stock as of
December 31, 2003:
In addition to the Common stock noted in this table, P. James Voloshin
owns one hundred percent of the one million shares of Convertible Preferred
stock issued and outstanding. Dr. Voloshin became a member of the board
of directors in April 2004.
Name and Address Number of Shares
Beneficially Owned Percent of Total
Class
Michael Caggiano
Hotel Alta, Alto de las
Palomas, Santa Ana
Costa Rica 1,531,202 7.8% Common Stock
P. James Voloshin
360 San Miguel Dr.
Suite 406
Newport Beach, CA 1,622,015 8.2% Common Stock
Security Ownership of Management
The following sets forth the shareholdings of the
Company's directors and executive officers as of December 31, 2003:
Name and Address Number of Shares Percent of Total
Beneficially Owned Class
Richard Wm. Talley 719,431 3.6% Common Stock
W.F. Rosenmiller (1) 653,828 3.3% Common Stock
Michael Caggiano 1,531,202 7.8% Common Stock
Totals 2,904,461 14.7%
(1) Some shares are registered to CR DE ESCAZU EMPRESA COSTARICENSE
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fourth quarter of 2003, the Company raised cash by selling
securities that were not registered under the Securities Act of 1933,
as amended (the "Securities Act"), or any state securities laws (see above).
The proceeds of these sales, less any deductions for transactional
fees including, but not limited to, commissions, accounting fees, legal
fees, and printing costs was used for debt reduction (including reduction
of a tax liability) and working capital. The Company paid a director of
the Company (Talley) $19,800 (10% of gross proceeds) in commission on the
sale of the stock.
During December 2003, the Company exchanged 240,000 shares of Common Stock
for $12,000 of the $40,000 debt owed to Rosenmiller. The debt was
exchanged for shares at a price of $0.05 per share (see Item 5:
Changes in Securities and Recent Sales of Securities).
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits are filed with this Form 10-KSB. Additional information
may be found in the Annual Report on Form 10K of the Registrant for
the year ended December 31, 1998, 1999, 2000, 2001, and 2002. No
reports were filed on Form 8-K during the last quarter of the period
covered by this report.
A report on Form 8-K (disposition of an asset) was filed in July 2004
that reported the sale of Restaurant Tropicana our beach property
located in Mal Pais, Costa Rica. CAE has sold the property and small
structure (a small open-air restaurant, known as Tropicana) to a
private buyer. Total consideration for the sale was $635,000 dollars
including previously received earnest money deposits. The price was
based primarily on the value of the land. CAE used proceeds from the
sale to reduce corporate debt including debt related to taxes due,
CAE may retain a relationship with the new owner. CAE is currently
negotiating to rent Tropicana restaurant and open it during the high
season (December to April).
VERIFICATION SIGNATURES
In accordance with Section 12 of the Securities and Exchange Act of
1934, the registrant caused this registration to be signed on its behalf
by the undersigned, thereunto duly authorized.
CENTRAL AMERICAN EQUITIES CORP.
/s/ Michael N. Caggiano
MICHAEL N. CAGGIANO, President/CEO/Board Director
Principal Financial and Accounting Officer
/s/ Richard Wm. Talley
RICHARD WM. TALLEY, Chairman, Board Director
/s/ P. James Voloshin
P. JAMES VOLOSHIN, DIRECTOR, SECRETARY
SARBANES-OXLEY ACT SECTION 302 CERTIFICATIONS
I, Michael Caggiano, President and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-K of Central American
Equities Corporation;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered
by this report;
3. Based on my knowledge, the financial statements, and other
financial information included in this report, fairly present in
all material respects the financial condition, results of operations
and cash flows of the registrant as of, and for, the periods presented
in this report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act
Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this report is
being prepared;
(b) Designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures; and
(d) Disclosed in the report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting;
5. I have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial information;
and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Michael N. Caggiano
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Michael N. Caggiano
President and Chief Executive Officer
October 12, 2004
SARBANES-OXLEY ACT SECTION 906 CERTIFICATIONS
I Michael N. Caggiano, President and Chief Executive Officer of Central
American Equities Corporation, hereby certify that:
1. The annual report of the registrant on Form 10-K for the year ended
December 31, 2003 fully complies with the requirements of Section 13(a)
or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the annual report fairly presents, in all
material respects, the financial condition and results of operations of
the registrant as of the dates and for the periods expressed in the
annual report.
/s/ Michael N. Caggiano
- ----------------------------------------------
Name: Michael N. Caggiano
Title: President and Chief Executive Officer
Date: October 12, 2004